The reality is that the Red Shirts have won.  Like it or not, they have been in the streets too long and have too many people shutting down too much of the city to be physically moved or cajoled out.  The government has ordered them out, has issued summons for arrest of the leaders and still they fill the streets and shut down multiple shopping malls, hotels and intersections.

The govt looks both weak and indecisive even though they have the law on their side.  They probably have about ½ of the populace on their side and business leaders are putting pressure on them to do something too.  But they have done nothing.

But to be fair, the govt have few if any choices left to them.  They can use force and push out the Red SHirts and then have a full scale riot on their hands—this will garner support from people on the fence and be condemned by all the int’l press and foreign govts.

Or they can negotiate—which just means that the Red Shirts get more and more leverage the longer they can hold out.

The military doesn’t want to step in either.  This is evidenced by the fact that there are NO police or military on the streets at all (police offices near the protests are closed!).  Even though there is a State of Emergency in effect, laws specifically regarding mass assemblies have been breached and there have been more than 40 bomb threats in the last 3 weeks—even injured policemen–there is NO security presence visible at all in the main protest area (Radjaprasong Dist.).

So if the military aren’t going to stop the protests will they force a coup?

They are stuck here too.  If they force a new govt on the people then they’ve simply recreated the same problem they are facing now—a non-elected government that the people do not accept.

This is a crisis of faith in the system, not just a partisan political move at this point.  The Thai people have to choose: if the government is dissolved and a new election occurs, will they accept democracy regardless of whom is elected or will the next government also face mass protests from the opposition?

If it was just the position of the PM in Thailand that was in question this might be just an academic question.  For example, Military kicks out Abhisit and sets up a temporary govt for 2-3 months to set up new elections and then the democratic vote ends the problem.  But it’s much more serious than that.

It is no secret that corruption in Thailand (and China, and Vietnam, etc., etc.) is a historical and cultural problem that affects not just governments but businesses and everyday life of almost everyone living in it’s wake. The Thai courts, the military, the freedom of press, the relationships/influence of business and powerful families are all in question.

So what if the government is replaced but the courts are still controlled by the military?  So what if a new PM is elected democratically if he again has big business ties (as Thaksin did)?  So what if Thailand gets a new government but a large enough percentage of the population decides they’re not going to accept it no matter what (and protest until the choice is, again, force or absolving yet another )?

Regardless of who wins this round Thai’s have some ethical decisions to make about what’s next for the land of smiles.  And these decisions will specifically affect business as well as politics, hopefully for the better.

On a lighter note, the best piece of political commentary I’ve ever heard came from a speech given by a UDD leader yesterday.  In talking about policies that look good on the surface he said (Using the word for transvestite as the personal pronoun) “It may look pretty, but until you see which bathroom it walks into you don’t really know what it is.”

And I bought a great shirt t00.  It says: “Have you gagged-down-like-a-dog enough yet?”  Very vulgar Thai verb for eat that you don’t use for people.

Also, the Red Shirts were the most polite group of protesters I’ve ever seen.  They offered me food, drinks and a place to sit and listen (relative close to the stage).  I must have had polite conversations with 10-15 different people attending the rallies last night–all from BKK (as opposed to the afternoon folk which are mostly bussed in from the provinces and paid around 65B/day)–to a person they were interested in what I understood and hoped that I would support their cause.  But they weren’t pushy about it.

Finally, just by chance I ran into a buddy from grad school who was also watching the protests.  What are the odds?!  Two Americans, that speak Thai, who went to school together, in the midst of a crowed of more than 10,000 people, at night, run into each other!

I’ve also been incredible busy–I’m writing this from Vietnam. 5 countries in the last week and the contrast in national “personalities” is just striking–I’m literally overlooking a huge street party in HCM city right now.  Vietnam just won the Asian Games football gold.  Thailand was a vacation (whether we wanted it or not) and China is 24/7 business–we were gone for only a week and came back to a new building that had previously just been cement, with a totally new glass face.  Taiwan seems more and more depressing each time I go and Hong Kong is still amazing.   And as we’re heading back to the US for Christmas (country #6 in 10 days), this will be the last post of the year too–other than the annual year-end review of the most popular posts.

Thanks for reading and commenting.  Merry Christmas and Happy New Year.

At the last Global Sources show in Hong Kong I was asked after my presentation: “So is there anything else that you think we (people new to business in China) should know?”  I answered, “Yea, tons!  Do you have a year?”

Here’s the longer answer to that question.  These are my suggestions based on the books that I’ve read over the last few years.  These are all books that I liked and found to be of value, or at least to be of interest.  I tried to focus the list and limit the qtty to what I expected is a manageable amount of reading for someone who is busy moving to another country.

Of course, this list is in no way exhaustive.  Feel free to add to it.

I’ve divided the suggestions into different categories based loosely on the situation of the coming reader.  The first link is to SRI’s book review (if I wrote one), and the second is to Amazon–you’re welcome.  My favorites are numbered (1-10).

First, Business Professionals—meaning people that are going to be working in China in a more or less completely Chinese environment full time.

(4) Inside Chinese Business, by Ming-Jer Chen

(3) Chinese Business Etiquette, by Scott D. Seligman

(7) The China Price, by Alexandra Harney

The Chinese, by Jasper Becker

Managing the Dragon, by Jack Perkowski and (8) Mr. China, by Tim Clissold

Business Leadership in China, by Frank T. Gallo

(5) The Coming Collapse of China, by Gordon G. Chang

(Yes, there are a ton of other books that could go here–feel free to add to the list below–but these are the ones that I thought were the best.)

Sub category: Importers—people trying to build their own brands and markets within China.

All of the Business books above, plus:

Luxury China, by Michel Chevalier and Pierre Xiao Lu

(6) Elite China, by Pierre Xiao Lu

Where East Eats West, by Sam Goodman

Sub category: Buyers—these are people that are here irregularly, but still have significant in-China experience.

All of the Business books above, plus:

Poorly Made in China, by Paul Midler

Factory Girls, by Leslie T. Chang

All the Tea in China, by Jeremy Haft

One Billion Customers, by James McGregor

Second, non-business types. Maybe spouses of professionals and/or English teachers or students (non-business focus).

(9) River Town, by Peter Hessler

Oracle Bones, by Peter Hessler

The Rape of Nanking, by Iris Chang

Will the Boat Sink the Water, by Chen Guidi and Wu Chuntao

Wild Swans, Jung Chang

Life and Death in Shanghai, by Nien Cheng

Soul Mountain, by Gao Xingjian

Chinese Lessons, by John Pomfret

China Hands, by James R. Lilley and Jeffery Lilley

Lonely Planet China, here’s the web site too.

Sub category: Politics and/or higher education

(10) China: Fragile Superpower, by Susan L. Shirk

The Tiananmen Papers, by Liang Zhang, Andrew J. Nathan, Perry Link, and Orville Schell

(1)Gifts Favors and Banquets (anthropology), by Mayfair Mei-Hui Yang

(2) Capitalism with Chinese Characteristics, by Yasheng Huang

The Great Wall, China Against the World, by Julia Lovell

What does China Think?, by Mark Leonard

The Search for Modern China (history), by Jonathan D. Spence

Chinese Religiosities (anthropology), by Mayfair Mei-Hui Yang

—————————–

If you only read/watch the news on the major sites then you’d probably concede that tourists in Thailand are in a world of danger because of the ongoing political protests there.  But talking with people on the ground, I find that quite the opposite is true.  I have one friend on holiday there now.  No problems.  Ditto multiple friends that live and work right in downtown BKK.  This article would agree with their experiences.

Certainly the long term consequences of the color coded temper tantrums will be significant.  Even disastrous.  But fears of physical harm to tourists are overplayed by the media looking for a story and subsequent over-reacting governments issuing travel warnings based on “news” reports.  (By the way, is there anything more overvalued by it’s own people and less valued by the rest of the world nowadays than the MSM?)  You should be much more worried about being poisoned by a mistress/hooker or beat up by a bootlegger than being caught up in political violence.  Even the Thai’s with color-coded blinders realized how stupid it was to shut the airport down, so that’s not much of a fear anymore.  The point is, you’re in about as much danger as you put your self in.

Further to the point that the media has to make up work for it’s employees, when I was a student in Israel in ’94 my parents were freaking out watching the news each day just sure that I was going to get blown up while shopping.  Other than a few limes thrown at us and a few rocks thrown at our buss, nothing happened for an entire semester.  Indeed, the “news” stories that my parents were seeing I’d not even heard about!  And I was living there!

One more example and then I’ll let the poor horse die.  I was in Chongqing in ’95 when China was shooting missiles into the Taiwan Strait.  Once again, we got a number of phone calls and letters (no email at that our “Communications University” yet, but they’d all read books about it!) full of concern that we were either being bombed or going to be thrown in the gulag and never allowed to leave.  If we hadn’t had the riveting and insightful CCTV and the People’s Daily we wouldn’t have even have known it was happening.

Now is a great time to go to Thailand; it hasn’t started raining yet and you’ll have the place all to yourself!  And if there are any more political problems this year, Christmas in Thailand is going to be a fantastic time to take long walks on totally empty beaches too!  Foreigners can buy homes/apartments there too and, like most places, it’s a buyers market right now. (No, I don’t get paid if you go there.)

Just remember to get an on-the-ground perspective before you cancel your factory visit or your beach vacation to Thailand.

I’ve been in 7 different factories in the last 10 days.  Factories making everything from furniture to molded metal office suppliers, from clothing to candle holders, and from offset printing to silk screening.  Despite their different industries/products they all had a few things in common.

One, they all had over 100 and under 300 employees—about ½ of what they all claim to have had this time last year.  Two, they were all working at way under capacity—two of them doing nothing but our orders this week.  Three, they all had some version of the same story: western client XYZ didn’t pay/canceled order/can’t take delivery—do we want to buy their product?

I was really amazed that there really wasn’t more anger.  They were all very matter of fact about it, though many were hurting.  I suspect that more than one of them will not be in business this time next year.  They were all still fishing for export orders and didn’t plan on looking for more domestic clients.  I asked if the domestic orders had increase at all and to a man they all said they had gone down as well.  They didn’t see the local market being able to step in and offer any significant replacement orders.  Just read this on CLB about Chinese stereotyping too.

By far the weirdest comment I heard last week was from one manager who claims that the US will soon start a war with China so that it doesn’t have to pay back any of the debt that China has purchased over the last two decades.  He told me wars were generally good for the economy and a war with China would be doubly good (for the US) since the US could stimulate the economy and write of billions of dollars in debt at the same time.  He was serious about it too.

I responded as politely as possible and shared a couple of jokes to try to lighten him up a bit—I told him that (thanks to the Vizzini the Sicilian) Americans know to “never get involved in a land war in Asia” and that two countries with McDonald’s had never fought a war.  More seriously, I tried to explain that our economies are too interdependent and that the physical, human and economic costs of these two huge economies going to war was a far greater loss than not paying back the whatever hundreds of billions in treasury debt that the US owes China.  He responded by saying that of course I would that, I’m doing business here.  But then left me with the oft-heard chilling factoid “China would win because we have more people and we don’t care about going back for the dead bodies” I was left with little room to respond.

2. Reading about China

While I travel back and forth from factories I have a lot of time to read.  I finished a couple of books about managing organizations/people in China this month and have a few thoughts that I think are important apart from the forthcoming reviews of the books themselves.

First, “entrepreneurial” and “innovative” are not the same thing.  I agree with Jack Perkowski that “the Chinese are among the most entrepreneurial people in the world,” but I add that they have not yet shown the same successes in innovation.  Can they?  Yes, certainly.  Will they?  I don’t know, but I surely wouldn’t bet against them.  The larger point really is that in many books (especially by Chinese themselves) the two concepts are used as synonyms.  Which they are not.  If they were, I wouldn’t have a job and Chinese brand names and/or new products would be seen much more in world markets.  Indeed, at least 50% of my time in China is spent putting out fires and solving problems (another 40% is spent setting and enforcing standards).  Creative and effective solutions to problems are by far the most valuable and rare commodity to me in China today.

One of the reasons, and the second important idea here, is that there isn’t a single locally-educated manager (MBA) with more than 15 years of experience in China today.  The first MBA program was only just started in 1991.  Think about what that means for any company in China—either your management team are all under 40, or they are foreigners or they were western educated, or they simply don’t have the education that most international business expect.  (I do not mean that without an MBA there are no great managers in China over or under 40.)  How many millions (?) of Chinese companies are just doing things “their own way,” or “like they’ve always been done,” or by will of the owner’s personality?!  This is a big part of the reason why it’s so hard to get international standard product on a regular basis from domestic level factories.  Perkowski says that “China has a shortage of more than seventy-five thousand “globally competent” managers.” And “the need for local managers is only going to increase.”

Great take on the current Chinese comments on world economics on Jack Perkowski’s blog today too.

And a couple of good articles on Taiwan and the continuation of corruption in China.

3. Chinese traffic and Hospitals, part 3,476.

I have a friend (overseas Chinese) who, over the weekend, fell while getting off the bus.  (It’s tough for most people, especially ladies in skirts and high heels, to get off a lurching vehicle that’s supposed to be stopped.)  She fell and was hurt pretty badly and had to be taken to a local hospital.  The bus company admitted responsibility.

She had some people help her check in and see an MD at the nearest hospital.  First MD says that she has a broken pelvis and a broken femur and will have to stay in the hospital in intensive care for at least a week (with expensive meds) and then have bed rest with hospital care and physical therapy for another 3-4 weeks.  She decides that although she is in pain she wants a second opinion.  The bus company wants her to get a second opinion too, they don’t want to pay for all the time in the hospital.  By the way, any guesses what the bus company’s compensation for a hospital stay is?  50RMB a day.  Since my friend was a “housewife” that is her official economic value–$7.32 per day.

So she goes to a second hospital and gets a second opinion, this time with x-rays.  Final prognoses?  Bruises.  She’s sore, at home and walking now.  No broken bones, nothing but standard pain meds.  No physical therapy necessary.  Just sit on a pillow and move slowly for a few weeks.

Like you’re doing with your factories here— bring your own translators and double check everything.

Next (believe it or not), I saw another dead body on the way to a factory in Panyu.  The accident was on the Guang-Shen Expressway at the Chang An off-ramp about 8AM Saturday.  There were not yet any police or emergency vehicles on the scene yet.  The bus I was on drove by just minutes after it happened, before traffic was even backed up much.  Don’t know exactly how it happened, but the car had been smashed by a bus.  It looked like the driver’s side had been hit by the front right corner of the bus.  Which probably means the lady driving the car didn’t check her blind spot (what blind spot?!) when changing lanes.  As we drove past we could see her neck at a bad angle, no airbag and lots of blood on her face.  Really sad.

So, like last time, just be careful.  That’s the point here.  (If you comment on this part of the post, your comments will not be posted—so there!  ttthhhbbbbtt)

And so we don’t end this section on a bad note, here is a much nicer bit about cars and faces.  Ferrari F4 for sale here at a show in Coco Park.  Asking price?  About $500,000 USD.  Not sure where you could safely drive an F4 here.  It seems to me that owning one in China would be like being the Far Side deer with the bad birthmark.  (“Bummer of a birthmark, Hal.)  But I’d much rather have these faces stuck in my head than the other one!!

4. Thailand–bad and getting worse.

Not only is it bad in Thailand but it was twice as bad in February ‘09 as it was in November ‘08.  Ouch!  At least the government is taking measures that will help both now (investment monies) and later (re-education/training), unlike the US which is spending money that won’t help now or later!  And an interesting look at how factory closings are affecting individuals.  And another bit on increasingly bad bank loans this year too.

I guess it’s time for me to suck it up and go to Phuket and see what I can personally do to help stimulate the local economy.  Anyone else up for sacrificing a weekend in the name of global altruism?  I really think that it’s the least we can do.

Really, with all the bad news about the world economy lately, how could anyone be surprised by bad economic numbers from anywhere at this point?  The numbers out of Thailand are indeed “dismal” and the fact that things are going to get worse before they get better is certainly no trivial matter.  Quite depressing, to be honest.  Why?  Because I think that a degree of the drop in the Thai numbers didn’t need to happen.  Much of the pain is certainly due to the world wide wipe out.  But a good percentage is self inflicted.

“This my thinking:”

First, Thailand is good at hard-drives, trucks and crafts/home furnishings (among other industries)—these three specific industries that are all but dead right now because of a lack of $ in export markets.

Some of Thailand’s other major advantages (low tariffs, educated workforce, good infrastructure) will not entice new orders all by themselves either.  So these industries are not going to recover until after you see recover in other regions first.

Second, agriculture is Thailand’s export leader.  Regional economic depression means that orders for exotic fruit are going to be down.  The fact that there were rice shortages last year (poor harvests) means that Thailand (and Vietnam and others) held onto their rice exports instead of selling them thus lowering the export numbers.

Third, the Tourism industry, which (I think) is second to agriculture in the Thai economy, is absolutely dead right now.  There just are not any more western tourists (or Chinese) going to Thailand right now.  I suppose that this could be seen as a good thing if some of the sex-tourism industry dries up.

A subset of, and increasing large part of tourism and the domestic economy is medical services (medical tourism).  Obviously, anything elective (lasic, tummy tucks, eyelid folds, boob jobs and sex changes) are going to be on the back burner when people are unemployed.

Fourth, Banking/finance and logistics services are hurting as banks have no money or are not lending and orders are down all across Asia (and everywhere).

Fifth, even before the economic downturn, Thailand was not a low-cost leader in ASEAN or Asia any more.  Vietnam and Cambodia have cheaper labor, as does China.  Hong Kong and Singapore have busier ports, better banking services and more western logistic headquarters.

I think that for 20 years now Thailand’s position has been a question.  Are they focused on Agriculture and tourism or are they a banking and logistics hub?  In the ‘90’s they actively presented themselves as the banking hub for mainland SEA, and with the lack of development in the other regional countries they are that kind of by default. They have a small but quality electronics sector, but they are by no means a world leader (except for one hard-drive plant).  Ditto for most other manufacturing capabilities.  But they are better in most than their close regional counterparts.  And they often benefit from reactionary anti-Chinese sentiments.

Even though we started SRI in Thailand, within one year we had to move to China just to compete—in terms of price, production times and diversity of opportunity.  As I’ve said before, Thailand with 66 million people often can’t even compete with Guangdong Province with 90 million.  All things being equal, I’m more worried about political stability in Thailand than I am in China.  And that’s saying something.  Which bring me to…

Finally, the self-inflicted wounds.  The Thais didn’t help themselves in the PR department last year.  ’08 was basically a disaster year for the Kingdom.  Boarder war with Cambodia, continued bombings in the south, foreigners arrested for stupid books, international magazines banned, a PM canned for a cooking show, kangaroo courts, Thaksin running all over the world, and the stupid protesters that shut down the airport for a week.   If you wanted to scare away business this would be the perfect formula.

And they haven’t learned their lesson yet.  Now it’s the Red Shirts that are going to do the same thing the yellow shirts did (ok, they’ve stopped short this time).  What’s worse is that there are almost weekly reports of new arrests for lese majeste and large political protests threatening to do the “same thing” as the last protests that shut down the airport.

Side Note: This color thing has really gotten out of control the last few years.  Before blue and yellow were just nice ways of enjoying a holiday and supporting the king/queen.  Now, the wrong colors can get you beat up (if you’re Thai) or mocked/questioned (if you understand the Thai around you).

What’s really a shame is that the once tolerant edge of Thai culture is being worn down.  True, Thai’s are still GREAT (more than they should be) to most foreigners.  But no longer can you rationally have a discussion about politics with business people over lunch.

Last time I was there (a month ago) it was so sensitive and so in-your-face that even discussions about the economy were difficult because of the political overtones.

I have a friend that can’t even read the book The King Never Smiles in his own house because his wife (Thai) would get offended.  I don’t say this to bash her, just to point out that the obsession with the king (and really all things political nowadays) is really affecting relationships in Thailand on many many levels.

And, in news that will certainly make world stock markets rise in expectation, Thailand and Lao opened a boarder train and Lao and Vietnam opened cross-boarder money exchange (classic communist news piece–no news whatsoever, just names of officials)!  Don’t hold your breath for the SEA version of the EU though.

I joke with people all the time that Thailand is a great place to vacation but a lousy place to do business.  We still do work there, but, to be honest, it’s usually when we can’t find what we need in China, Taiwan or Vietnam.  Sad but true.

At least the fishing is still good.

___________________________________________________________

I purposefully tried to avoid Asian news for the CNY Holiday.  A change is as good as a break, right?  It was nice to spend some time both in the US, at shows, and in a little Chinese village to gain a perspective other than President Obama’s Depression forecasts.

Back in the saddle, while discussing the recent events with a number of other friends of mine with connections to Thailand we commented on the fact that for Westerners the single most under appreciated or misunderstood concept in Asia, in business or politics or otherwise, is probably the concept of face and the corresponding reciprocal social relationships.

In Thailand, the library of academic literature is overwhelming on this—and current politics support it all.  A bit further north, I’ve read about a lot of theories about motivations for business success in China, but there isn’t one that, I think, is more powerful than the issue of face.  Sure the desire to be rich is a driver for everyone.  Yes, people want to be both safe and provide for their next generation.  Conspicuous consumption of wealth, which is a superficial express of the larger “face” concept, is certainly a motivator for many.  Even nationalism has been, more so in the past I think, a minor motivator to getting rich.  (I don’t see nationalism really motivating many anymore, without a actual physical threat.  In China the hatred for Japan is dying.  The Olympics are over.  Many, especially in China’s cities, certainly no longer see the West as evil; East-coast China just isn’t that oppressed any more.  And those in inner-China never really cared.)

But back to face, I usually get a major lesson in face a couple times each year.  Just when I’m feeling comfortable here, I get hit with a comment or an issue that puts my business (or even personal) interests in direct and glaring conflict with someone else’s face.  Often times it’s one of those “Ah ha” moments where I finally see through the circular logic and see that the central issue is not what I’ve been focusing on (usually the bottom line of time or money) but something more personal, for lack of a better term.

What’s going on in Thailand is not that simple, to be sure.  But so much of what is happening now is the continuing retribution for the loss of face and power from Thaksin’s (certainly corrupt) reign earlier this decade.  It seems that in the past 6 months, if we’ve learned anything, is that what’s best for Thailand is not necessarily what either faction really wants.  Not that Thai politics are unique in this regard, but in Thailand it has become blatantly obvious that “restoration” of the pre-Thaksin power structure, in the Name of the King, is the singular priority for much of Bangkok’s elite.

From the continued inept handling of the unrest in the South, to jailing of foreign authors (who printed 50 and sold only 7 copies) for les majese, to the in ability to resolve boarder issues with Myanmar and Lao, to boarder slap-fights with Cambodia, to the military hauling refugees out into the middle of the Indian Ocean and leaving them, to the physical occupation of the BKK airport, there seems to be no limit to the willingness to sacrifice what’s best for Thailand for political and/or economic advantage.

Really, if you want to get into the heads of your Asian counterparts, study their motivations—focus on personal relationships and responsibilities that may seem extraneous to “business” interests and you’ll start to understand what is driving business on the other side.  This isn’t a criticism or critique—it’s just how it is for many many people in East and Southeast Asia.

One last comment on Thailand.  I’m willing to bet that there will be blood in the streets of Bangkok after the death of the King and sometime before or within the first year of the reign of the Crown Prince.  He is not liked or trusted and does not have the resume of his father.  He is coming into power at a time where the perfect visage of his God-King father has been cracked for the first time.  And very publicly too.  His mother has alienated half of the country with her attendance at the funeral of the boy killed in last year’s protests and so much of the (generational) respect and good will she could have passed on to her son will now not transfer.  His beloved sister, not the Prince himself, manages the Thai-China relationship, arguable Thailand’s most important relationship now.  The country, very similar to the US, is now divided into distinct and very polarizing camps but does NOT have a history (despite their Buddhist roots) of peaceful dissent or conflict resolution.

Thailand has over and over failed to implement true independent government and judiciary.  There is, unfortunately, no reason to think they will be successful on their next opportunity either.

Now on to China and the debacle that is Western governmental economic policy.

If you didn’t know it before, don’t believe the press coming out of China now.  China will NOT save the rest of the world (and not because we are committed to destroying ourselves in the name of “hope” and “equality” either).  Mr. Hu is pretty flashy on the world stage in Europe this week, but let’s put his pride into a bit of context.

6.8% growth is certainly much better than the US retraction of about he same 6%+ to be sure.  But the US economy, even with the permanent loss of trillions of dollars of wealth, is still more than three times as big as the Chinese economy and with only 1/5 of the population.  The US lost the equivalent of the Indian annual economy in one day last fall and was still twice as big as Japan.  I don’t say this as mater of pride, but just as a matter of context—the US economy for the last 50 years has, in general, been mind blowingly huge.  I think that we just take this for granted.

The Chinese economy was at 6.8% for the 4th quarter of ’08—but that might as well be 0.  Why?  Because anything less than 8% spells social unrest.  And you know the books are cooked to make the numbers look better than they really are too.  CNY this year was quite at home, in Jiangxi, and much busier in Shenzhen—meaning people didn’t go home.  There was no traffic on our cross province drive either.

Other indicators: Higher numbers of laid off labors than expected.  Exports are down 40%.  Luxury goods purchases are down 30%.  Auto sales are down up to 20%.  Expenditures for Chinese New Year are estimated to be about 30% of last year’s total too.  This is CNY spending is nothing to shake a stick at either—typically CNY represents as much as 40%+ of many industries annual income!  How do luxury stores that are empty all year survive?  CNY.

The Chinese economy, rather than being a savior, is actually dragging down other export-oriented neighbors like South Korea and Hong Kong.  The NYT ran a class/race envy piece this week talking about how 400 rich Chinese people couldn’t tour the US to buy houses on auction and how Mainlanders were pouring into HK to buy gold and diamonds—no numbers, just cute stories.  But not only is this just the annual CNY story that we see from the uninformed US press every year, but the “flood” of mainland buyers into HK didn’t even make up for the drop in spending by local HK buyers.  Total sales of gold and diamonds are down over 10%.  That’s right—hundreds of millions of rich socialists couldn’t out-spend 8 million capitalist former English colonists.  Two can play the spin game.

Side Note: Let me say this, if I had to praise one leader, either Mr. Hu or Mr. Obama, for the handling of the crisis so far, my vote, hands down, goes to Mr. Hu.  Mr. Hu is specific and proud and has knows how to at least play the role of leader (i.e. sounding hopeful, positive and optimistic).  Who is writing the text for Obama?  Could his press conferences and public statements be any more dire, negative and (ironically) completely HOPELESS?!  I understand Obama’s need to manage expectations, but his words and positions so far not only lack of faith in America but come off as classless, boarder line dishonest, political to the hilt and certainly not helpful (unless you are trying to justify more govt spending…..hmmm).

So is the Chinese Economy going to continue to be slow or get better?  Growth in ’07 was 13%.  ’08 is expected to come in at around 9% and predictions for ’09 are ranging between 5% to 7.5%.  Even the Chinese government doesn’t have enough cash to raise their growth numbers 2-3 percentage points with public works projects.  But I will say this, the very impressive thing about China is the fact that they will keep themselves afloat, at all costs.  Give them props for having their priorities straight and their financial house (mostly) in order.

China will continue to be in positive numbers, but scarily low for controlling social unrest.  And the numbers will continue to be higher in print than they are in reality.  The Chinese people will, in the East continue to make less and less in comparison to 5 years ago.  There will be HUGE movements of industry into the inner provinces as experienced workers stay home and infrastructure and incentives improve.

If the recession in China, e.g less than 7% growth, continues into 2010 there will increasingly be more control exerted over the economy and especially international exchange and funds transfers.  Control of the media and the currency will continue, regardless.  Of course, currency manipulation always helps one’s own economy and numbers and that will continue.

Now I’m not saying that China’s currency manipulation is the reason for the US economic problems, but the artificially strong currency is certainly helping ONLY China.  So here’s a challenge to China: If there truly is no currency manipulation by the Chinese, Mr. Hu, then why not let the RMB float?  If Chinese officials are truly so confident about the strength of the RMB, then put the Yuan where your mouth is, Mr. Wen.  Take the lead of the world economic recovery, prove once and for all the dominance of the Chinese system.  Step away from the mic and let the economy speak for itself.

Regardless of the value of the RMB, the sad reality of China is that domestic strength in the Chinese economy simply does not translate into external stimulus for Western Economies.  Sure the Airbus deals make a small dent, but these orders are not the bulk of foreign transfers of wealth or FDI—something that China is not known for anyway.

Chinese do save 30% of their income, but you have to remember incomes are relatively low—middle class in China is $9,000 to $18,000 a year.  30% of that is nothing, even if you do multiply it by 200 million.  All this money is either saved in mattresses or spent locally—cars (mostly domestically manufactured), houses, and Chinese New Year gifts of food, clothes, jewelry and entertainment.  The Chinese economy is not like the US where EVERYTHING you see in your local Wal-Mart is imported from some other country.

Finally, my favorite quote from a Chinese friend this last week: “Obama is crazy!  He’s just copying what China used to do.  He’s trying to be socialist.”  Yup—can everyone but Americans see this?

What prompted this comment?  The news about the White House wanting to limit CEO bonuses for bailed out companies—“just like what China did with their SOE’s,” said my friend.  The unspoken reality of socialism, that Chinese willingly admit but westerner academics do not, is the fact that socialism makes everyone equally poor, not equally rich.  Where are the China SOE’s and their employees now and where will US companies (banks, auto manufactures) be in the future?  Either completely dead, sold to for-profit foreign businesses or losing money just to keep people employed to stop social unrest.  Hello, France!  Just because China has cash now and the West is a huge mess does not mean that socialism works. In fact, I think that China is Exhibit A for socialism NOT working.  If you think that China in socialist in anyway but in name, you’re wrong.  “Socialism with Chinese characteristics” is not socialism.  It’s a capitalistic totalitarian state—the best of both worlds; money and power with minimal (relative to 30 years ago) social responsibility.  The US is now trying to both gut capitalism and increase governmental social responsibilities at the same time—even if you are fine with this direction, please tell me who’s going to pay for it?!

And here’s a reward for reading that whole thing (or at least scrolling down to the bottom)!  America is now China’s “business bitch.”  Listen to “China Please” for a great laugh (unless you’re from Taiwan, then you probably won’t like some of the lyrics)!   The page automatically starts playing the first song on the play list–China Please is the last song–just click on the text.

Other News and Blog Links I found interesting this week:

Asia Sentinal

CFR

China Wall Street Journal Blog

CN Reviews

China Solved

China Supertrends

China Vortex

For sale in China

Caijing

CFR 2

Asia Times

The Economist

BBC 1

Asia Times 2

The Economist 2

6.    No one can control Chinese workers around national holidays.

Despite the iron fist that most use to control their workers the rest of the year, Chinese New Year is the exception.  Workers rule with their feet.  They leave when they want and come back when they want.  With a real labor shortage here for the last two years most workers know that they will have jobs waiting for them when they get back.  Whenever that maybe.  And, if there still work too close to the holiday, many will just leave.

While the three big holidays are now changing into 1 big holiday and a number of other little breaks like the rest of the world, Chinese New Year is still the biggest deal.  Imaging having summer vacation, Thanksgiving and Christmas all in the same 10-day period and then x what ever traffic you can imagine by 100% and that’s CNY.

This year, we’ve had a number of factories tell us that if we didn’t have our orders and deposits in by Dec 31st then they wouldn’t take them until after CNY because everyone would have gone home (because they had nothing to do).

Some factories are already on holiday.  Many will leave as early as this week.  Some start this weekend.  Most start next week sometime.  But no one will be back before February and many won’t be back until the 15th.

For some reason, it seems that CNY is always a big shock to everyone every year.  Hello!  It’s annual—you can plan for this.   Sure, it follows the lunar calendar so it’s not a fixed dates but Easter and Thanksgiving back home move each year too and we still manage to get those right.  This just takes some planning—admittedly, factories often don’t know before New Year’s day when their CNY breaks will be but you can (and should) block off the two weeks surrounding Chinese New Year months in advance each year.

7.    Everything NOT specifically detailed in the contract will be charged back to you or substituted at the lowest possible cost by the supplier.

This isn’t Chinese, it’s everywhere.  That’s the point of contracts, right?  But in China it seems like there are myriad expenses and millions of variations in component quality that you’d not even think existed let alone you’d need to specify or contract.  The problem here is that often you’re not asked about unspecified details, they just plug in the cheapest option (and maybe charge you for better).

So this problem, like most of them, really turns into a communication and presence issue rather than a contract issue.  Possession is 9/10ths of the law and that’s how it works here too—if you are here, if you are seeing it, talking about it, watching it—you get exactly what you expect.  If not?  Someone else with different motivations/agendas is making decisions about your money and product.

8.    Build in extra time for every stage—even if it pushes you past your deadline.

Add extra time into EVERYTHING.  Even if it’s something you’ve a number of times before.  Especially if production schedules are near any holiday or during typhoon season.  You think I’m joking; I’m not.  Typhoons along the coast always give us at least one delay a year.

If the factory is telling us 20 days, we say 23. If the shipper says 16 days we say 21.  If the United States Post Office says two weeks, we say a month and a half. (Don’t ever send anything to China via the USPO.  If it ever does get here, it’ll be crushed beyond recognition, it will have been poked, prodded and “customed,” it will cost you an arm and a leg even if you’ve already paid for it on the other end—and that’s if they don’t loose it first!).

The most difficult times to schedule out are sample times.  Don’t ever ever ever commit to a delivery date if part of the time includes time for samples.  Especially if the product is a first time item that has never been made before.  Factories are notoriously overly optimistic in what they can do and foreigners are notoriously trusting of what people say.  That’s a bad combination if you’ve got to get product into Wal Mart within a 24-hour window.  Even simple adjustments can take weeks (there’s a reason you’ve never seen your idea before—chances are someone thought it up but couldn’t pull it off).

Another thing that we see foreigners do often, never to good ends either, is to assume that since general production times at large Chinese factories are overall so quick that late changes to “one little thing” will not make any difference.  WRONG!  Even the smallest of changes, if not specified prior to production starts can cause days or weeks of delay.  Materials are bought, cut, printed, dyed, molded, painted prior to final assembly and if you change one piece, the color of a molded part for example, you may delay the entire assembly line while they remix paint/dye or while they remake the entire piece because it was all ready all painted.

9.    Either specify up front or fix it later.

Similar to the situation with art and contracts, if you have specs that you’re not totally, well, specific, on then you’re going to have to fix it or change it later.  No if, and’s or but’s about it.  If there is a dimension or measurement that you’ve not specified someone else is going to have to guess.  And you have no clue who that someone is, what their experience is or what their motivations are (Cost? Quality? Timely production?).  If you ever think, “oh, this is just obvious, I don’t need to spec it out” you’ve actually just added a delay, a cost increase and probably an argument into your project.  Way to go!

10.    Double confirm that you are talking about the same thing.

Unless you are sitting in the factory yourself, there is really no way to confirm that you both talking about the same things.  Cameras and art are great, but not everything translates like you expect.  Taking a train/plane/taxi for a couple hours to sit down with the factory for a morning is worth the cost—unless two to four weeks of digital communications and a(nother) round of incorrect samples is your idea of a good use of time.  Really, talking face-to-face will save you weeks—not days, not hours but weeks.

But you absolutely can’t be here to double check yourself then make the factory describe back to you what they are doing.  Make them commit, in writing, to the updates/changes/next steps and get a date and responsible individual for each item.

Just because you sent a sample, a set of digital spec’s and even CAD or other 3D files doesn’t mean that you are all talking about the same thing nor does it guarantee that, even if you are talking about the same thing, both sides each what the other side is talking about.

The more you double check, the less you’ll have to pay for when mistakes are made later.  It’s just that simple.

11.    Assume that everything will NOT go according to plan and plan accordingly.

You will not get samples on time.  You will not get colors, packaging and art correct the first time.  You will not get the quality you thought you were getting the first time.  If you know this going in, life is much less stress full later on.  So plan on problems and you’ll be happier, more prepared and have the time/temperament to deal with them.

12.    Anything less than a signed stamped “YES” is a “NO.”  And even a contract is only as good as the verification/enforcement.

You know contracts don’t mean much here.  So if the contract is the beat-all end-all of legal documents why would emails, MSN chats or Skype notes be enough to convey production changes?  Hint: they’re not.  Like anything else, you first of all want to see it in writing to confirm that it’s both received and understood.  Then, second, you want someone that is actually responsible (for more than their sales commission) to confirm that the changes/updates are received and understood.  And finally you need at least one, not more, people to confirm what change the change/update will have on both price and production time.  Sales managers or reps are not the people that can give you these assurances.  They will agree with just about everything you ask for, unless you ask for a signed commitment from them—then they will have to go talk with a manager (which is whom you want to talk with anyway).

It’s a small thing to have the sales rep get a manager to sign off on changes/updates, but it can make a huge difference in what you eventually get/pay for.  So get all commitments signed, stamped and faxed back to you.

Now you’v got it signed, they confirmed it’s going to happen.  You’re safe, right?  Nope.  You still need to verify that everything is actually done like it was agreed to.

Good luck!

No, we were not on vacation for all of last month.  Not all of it, at least.  We’ve actually been so busy that I’m wondering where the depression I’ve been reading about is.  Really.  Back in SLC, the stores, mall parking lots, theaters and restaurants were so full that we had to adjust evenings out and shopping trips because seats and parking spots we’re completely full/sold out.  I was thrilled to see this.  And I’m so glad that, while it’s certainly bad out there, it’s nice to see that it’s just the media that is making it worse—meaning it’s not as bad as we read about every day.

Also, I was told that a couple of interviews I did in November were on the CBS Evening News (with Katie Couric) in the US last month.  Twice!  December 1st and 11th.  Thanks for letting me know, CBS.  I’ve got a link to one of the clips here. Nothing for the other one, though.

A little bit of a story here.  I interviewed with CBS on camera for 20+ minutes each at of a couple of locations and there was a ton of factory film footage too.  I spent 6-8 hours total with them over two days.  All that for 5 seconds!  I guess that means I’m still due 14 minutes and 55 seconds more of fame.

Now for the real blog.

We’ve had a number of issues that have come up in production during the last month that individually wouldn’t be huge deals, but collectively they really begin to add up.  Not all of these problems happen on every project, of course.  But they are common enough on many projects that you’ve got to be aware of the potential for these to pop up at any time.

If you don’t know that these things could potentially happen to you, you’ll be caught of guard and the surprise can be almost as bad as the problem itself.  So, to help prep for impending issues (which WILL happen, you can count on it), here are some of the common avoidable “surprises.”

1.    Price changes will only make your price go up (except for shipping).

This isn’t as crazy as it sounds.  Typically, factories pre-buy a limited amount of product, as do local distributors.  When prices are going up, they bid out to you the new, higher price, before it actually hits them since they don’t know when you’ll actually pay a deposit.  The reverse is true when prices go down.  Since they economy slowed way down many suppliers have been left with stock in their warehouses—expensive stock at that.  Now that gas prices are back down they are still holding on to stock that they want to sell first.  So the drop isn’t as fast as the rise.  The only real exception to this is international shipping, which seems to go up and down just about as fast as other market prices.

The answer here is to know as much (or more) about the costs of component parts than your supplier.  This may not be worth if for small pieces or small orders, but for anything over $25K you can probably save yourself 1-2% and that’s certainly worth it.

An easy way to do this is to bid out the same item with multiple suppliers.  You’ll be able to tell what your price should most likely be by throwing out the outliers on both ends.

2.    Mistakes will be your responsibility.

This is probably the most irritating part about doing business in China.  No one is responsible for anything that has to do with “your” product.  For example, we had a factory bid on a product, totally spec’d out, with material samples and photos.  They gave us a bid and we placed an order.  Then, just today they came back and said: “Sorry, we made a mistake.  The cost is 30% more and there are dye fees for each of the colors (21).”  They refuse to eat the costs of their own mistakes despite the fact that we have a contract and PO and have paid the deposit.  Or, rather, it’s because we have all this in place already that they can just give us an ultimatum.  Why?  Because they know that the order, for less than $10K is not enough to go to court over.  And we need it as a component in a larger product.  And we’ve already paid a deposit.  We’re committed and they know it.

This is the worst kind of mistake.  Productions errors you at least can talk about and often, if you’re on-site, can even fix on the spot.  But this type is just something that comes out of left field.  Something that can’t be verified and leaves you with few if any options but to pay.  I swear that people stay up nights thinking up these types of issues just to make a buck or two.

3.    Delays will be your responsibility (unless otherwise contracted against).

Same as with the costs of mistakes, if you don’t plan for delays, they will be a major hurdle to you completing your project on time.  Everything is late and so up front we always build in a buffer for each item.  But sometimes you get a component supplier that is just killing you on time and slowing everything down.  I’m not talking about big orders.  Again. This is little stuff—$5K to $10K worth of component parts for a larger project.  My experience is that if you’re not willing to go to court over it then you have very little leverage.

This happens MUCH more with our Southeast Asian suppliers than it does for us in China.  Honestly, one of the good things about China is that so much of what we do is so close to Shenzhen and can all be done in huge capacities in relatively short amounts of time.

The key to keeping things on track is to get not just finish dates but process dates and then to (independently) confirm them.  Was raw material delivered on time?  Were molds delivered on time?  Did production start on time?  You should be doing in-line QC anyway, so you’ve got a least one day when you’ll be able to see where the supplier is in terms of production goals.  But verification (best way is in person) is essential to getting things done on time.

4.    Art and designs will be changed unless you are involved in the process.

If you are not involved in every step of the mold or (re)design process be warned that production will NOT match art.  As far as I can tell, this is due to three factors.  Engineer’s ability/experience, willingness of the factory to really do what you want, and material or technological limitations.  If we fly someone over from the US we can almost always get exactly what we want—and the factory usually learns a few tricks in the process.  If we are asking for a lot of molded items within a short time, we get cut corners.

But even simple stuff like the placement of text on printed cards can be “adjusted” by local suppliers, sometimes not on purpose.  Often if factories are not using the same software (version) as the US then the fonts or placements will not be the same over here.

Last month we were offered a molded sample of “our” new designed product that was the same general shape but nothing else matched.  Turns out, they already had a mold from a previous client and just thought that they could pass that piece off on us as our since they were relatively similar.

There is just no better solution to this problem them being here.  We had a client that asked: “should we send art for factory engineers to work with on their own or should we come over and work with them directly?”  No contest.  If you’re spending money you should be intimately involved with how it’s spent.  We bring engineers and designers over to work with factories many times each year and outside of a few issues of food poisoning, we’ve had great results—much better than if we had just passed along spec’s and waited for product.

5.    Extras and rejects will be resold to others and/or recycled into your final product.

Your exclusive distributor in the EU calls you one day and says “Hey, we’re going to end our agreement with you!! You’ve sold product to another distributor!”  You’re lost, confused and know that you haven’t sold to anyone else in the EU.  What happened?  Yup, all your production rejects found their way to market.  Surprise!  We’ve had a couple of people come to us with this problem.  And, I’ll admit, we know that it happened to us once with a factory in Thailand too.

In the normal course of production and printing you’ll have a decent % of rejects—probably a higher % than what you get in the US as process are just not as tight over here in many things.  This is to be expected.  And most of these will be sold to recyclers or recycled in house.  The qttys are so small that they may find their way into the local Chinese markets but no farther than that.  Not really a big problem.  But when you have a significant % of a production run or even an entire run of products that are rejected you really need to control what happens to them.  We’ve heard of people that have watch their product be loaded onto garbage trucks to be destroyed only to find out that the trucks went out one gate and rounded back to another and the product was sold to people who took it out of country and into the client’s home markets.  I personally know that multiple factories that I’ve worked with sell functionally correct but esthetically incorrect product to international distributors on a regular basis.  Do you really think that anyone outside of North American or Europe cares if the widget is lime green instead of forest green?  Well, they don’t.

Specify exactly what will happen to rejects, overruns, samples, etc.  Have QA confirm it.  Build into contracts that if any product that is found outside of the factory will be fined or sued.

Sorry, this is getting long….so I’ll break it into two parts and post the rest later this week.  Part II will included:

6.    No one can control Chinese workers around national holidays.
7.    Everything NOT specifically detailed in the contract will be charged back to you or substituted at the lowest possible cost by the supplier.
8.    Build in extra time for every stage—even if it pushes you past your deadline.
9.    Either specify up front or fix it later.
10.    Double confirm that you are talking about the same thing.
11.    Assume that everything will NOT go according to plan and plan accordingly.
12.    Anything less than a signed stamped “YES” is a “NO.”  And even a contract is only as good as the verification/enforcement.